This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How Capital Markets Will React to FOMC News

NEW YORK ( TheStreet) -- In my opinion, Federal Reserve policy failed as soon as the FOMC cut the federal funds rate below 3% on March 18, 2008, to 2.25%. It was Dec. 16, 2008, when the Fed cut this rate to 0%, where it could remain for years to come if Janet Yellen becomes the next Fed chairman in early 2014.

The Fed's quantitative easing programs began in late November 2008 when the Federal Reserve Open Market Trading Desk in New York began to purchase $600 billion in mortgage-backed securities. Two years later the Fed announced another round of purchases and this time it was $600 billion in longer-dated U.S. Treasuries by the end of second quarter of 2011. This second wave was dubbed QE2.

QE3 was announced on Sept. 13, 2012, and QE4 was announced on Dec. 12, 2012. QE3 is the purchase of $40 billion per month in mortgage-backed securities and QE4 added another $45 billion of longer-dated Treasuries per month. There has been talk that the Fed will begin to reduce these purchases following today's FOMC meeting. Some say yes, others say no, I say it doesn't matter as the program has failed in its objective, which is to lower mortgage rates.

Before QE3 and QE4 were implemented the yield on the Treasury 10-year note traded as low as 1.377% on July 25, 2012. The lowest point for this year is 1.612% set on May 1, just about the time when speculation began that the FOMC will likely taper securities purchases following today's FOMC meeting. The high yield in anticipation of tapering has been 3.007% set on Sept. 6. Instead of pushing mortgage rates lower as intended, the bond market became worried about future inflation that the massive QE's could create, and for this reason the combination of the QEs and the 0% federal funds rate has been a failed monetary policy.

Continue to trade the bond market just like a stock using iShares 20+ Year Treasury Bond (TLT) ($103.71). The Treasury ETF remains below its 50-day simple moving average at $105.67 after setting a multi-year low at $102.11 on Aug. 21. The weekly chart shows an oversold condition with the five-week modified moving average at $105.25 and the 200-week SMA at $107.77. This week's value level is $100.96 with a monthly pivot at $105.75. My semiannual value level lags at $92.32 with annual risky levels at $116.26 and $120.42.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
TLT $132.13 1.31%
DIA $176.74 -0.47%
GLD $115.60 1.71%
SPY $205.70 -0.35%
XLE $77.56 -0.03%


DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs